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The dollar meanwhile rebounded against the yen as investors began to speculate that the Bank of Japan might have to ease its monetary policy even though interest rates are already the lowest among major economies.
The euro was hit on concern that Europe would feel the effects of a US slowdown and after top eurozone finance official Jean-Claude Juncker conceded that a recession in the world’s biggest economy ”could not be ruled out.”
Currency markets followed sharp falls on stock markets worldwide as traders rushed to take cover under “safe haven” currencies like the Swiss franc, they said.
The euro fell to 1.4420 dollars from 1.4440 and to 153.07 yen from 153.14.
The dollar rose to 106.15 in Tokyo afternoon trade, after the Bank of Japan decided to keep the easy monetary policy as expected, jumping from 105.87 yen earlier in the day and compared with 105.90 late Monday in London.
US markets were closed Monday due to a holiday.
Several European share markets posted their biggest fall Monday since the September 11, 2001 attacks amid a spiral of disappointment over a stimulus package announced last week by US President George W. Bush.
Heavy selloffs in China and India also raised fears that emerging economies were not insulated from troubles in the United States as thought.
“If the market turmoil continues and US and Japanese investors accelerate their repatriation efforts, the euro can fall steeply against the dollar and yen,” warned Thomson IFR analyst John Noonan.
Foreign investors including Americans and Japanese had looked towards the eurozone for higher returns due to its relatively high interest rates.
In a week thin on the US economic calendar, investors were eyeing a slew of key economic reports released on Thursday by China to see how much the Chinese economy is affected by slower US growth.
Masaki Fukui, senior market economist at Mizuho Corporate Bank’s forex division, said the yen held ground due to the market turmoil.
“Following falls on global equity markets, investors are shunning risk, which is pushing the yen higher against other major currencies,” Fukui said.
The Bank of Japan unanimously kept its benchmark borrowing rate Tuesday at 0.50 percent but some traders believe the central bank may have to lower borrowing costs even further.
“If exports, which have so far been supporting the Japanese economy, were to slow down due to weakness in the US economy, BoJ board members may then discuss cutting rates,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.
The dollar was broadly higher against regional currencies.
It rose to a 15-month high against the South Korean won, a strong gainer last year. The dollar was trading at 952.70 won, up from 947.10 late Monday.
The greenback rose to 1.4501 Singapore dollars from 1.4393, to 41.45 Philippine pesos from 41.00, to 9,490 Indonesian rupiah from 9,443 and to 32.48 Taiwan dollars 32.32.
The dollar, however, fell to 31.00 Thai baht from 33.08.
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